IDEAS home Printed from https://ideas.repec.org/p/jrp/jrpwrp/2008-080.html
   My bibliography  Save this paper

The Economics of Net Neutrality Revisited

Author

Listed:
  • Gernot Pehnelt

    () (Director of GlobEcon, Research Associate at ECIPE and Research Partner at the Chair of Economic Policy, Friedrich-Schiller-University Jena)

Abstract

In this paper, we analyze the problem of congestion and quality loss of data transmission through the Internet from an economic perspective. We show that due to the congestion problem, quality sensitive services are likely to be crowded out by high volume but less quality sensitive applications in a strict "neutral" system. This crowding out reduces the availability of services and the development and diffusion of innovative and high value services. Not least, the congestion problem causes welfare loss. As we discuss in this paper, the differentiation of data packets according to their quality sensitivity could remedy the congestion problem. Appropriate business models that incorporate quality of service concepts could be very efficient in preventing the crowding out of high value quality sensitive services without affecting other applications and would be very convenient for Internet users at the same time. We show that any ex ante regulation in the sense of strict Net neutrality could seriously harm the development of innovative business models and discourage innovation and investment.

Suggested Citation

  • Gernot Pehnelt, 2008. "The Economics of Net Neutrality Revisited," Jena Economic Research Papers 2008-080, Friedrich-Schiller-University Jena.
  • Handle: RePEc:jrp:jrpwrp:2008-080
    as

    Download full text from publisher

    File URL: http://zs.thulb.uni-jena.de/receive/jportal_jparticle_00138336
    Download Restriction: no

    References listed on IDEAS

    as
    1. Guth, Werner, 2007. "Satisficing in portfolio selection--Theoretical aspects and experimental tests," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 36(4), pages 505-522, August.
    2. Siegfried Berninghaus & Werner Güth & M. Vittoria Levati & Jianying Qiu, 2006. "Satisficing in sales competition: experimental evidence," Papers on Strategic Interaction 2006-32, Max Planck Institute of Economics, Strategic Interaction Group.
    3. Napel, Stefan, 2003. "Aspiration adaptation in the ultimatum minigame," Games and Economic Behavior, Elsevier, vol. 43(1), pages 86-106, April.
    4. Arthur, W Brian, 1994. "Inductive Reasoning and Bounded Rationality," American Economic Review, American Economic Association, vol. 84(2), pages 406-411, May.
    5. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
    6. Werner Güth & M. Vittoria Levatia & Matteo Ploner, 2008. "Satisficing and prior-free optimality in price competition: a theoretical and experimental analysis," Jena Economic Research Papers 2008-067, Friedrich-Schiller-University Jena.
    7. Werner G³th & Hartmut Kliemt, 2004. "Bounded Rationality and Theory Absorption," Homo Oeconomicus, Institute of SocioEconomics, vol. 21, pages 521-541.
    8. Dixon, Huw David, 2000. "Keeping up with the Joneses: competition and the evolution of collusion," Journal of Economic Behavior & Organization, Elsevier, vol. 43(2), pages 223-238, October.
    9. Werner Güth & M. Vittoria Levati & Matteo Ploner, 2006. "Is Satisficing Absorbable? - An Experimental Study," Papers on Strategic Interaction 2006-10, Max Planck Institute of Economics, Strategic Interaction Group.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Net neutrality; Internet; bandwidth; quality sensitivity; crowding-out;

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jrp:jrpwrp:2008-080. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Markus Pasche). General contact details of provider: http://www.jenecon.de .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.